Customer Reviews

The Internet Bubble: Inside the Overvalued World of High-Tech Stocks--And What You Need to Know to Avoid the Coming Shakeout

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Some in clandestine companies combine; Erect new stocks to trade beyond the line; With air and empty names beguile the town, And raise new credits first, then cry 'em down; Divide the empty nothing into shares, And set the crowd together by the ears. - Daniel Defoe (1660 - 1731)

The Internet Bubble documents the latest incarnation of the world's second oldest profession: separating gullible investors from their money. Not since the 1920s has the US seen such a highly evolved stock mania machine involving media outlets, market pundits, bankers, brokers, pension funds, venture capitalists, and legion uniformed investors taking it all in -- and getting taken in. This has been going on for years without much notice. At last we have in Anthony and Michael Perkins, founders of The Red Herring, working as investigative journalists who use their insider contacts to go out and get the story.

As the founder of iTulip.com in November 1998, a parody of an Internet company created to draw attention to the Internet stock mania game, I take a special interest in the Perkins' excellent new book. Just as we do on iTulip.com, Anthony and Michael Perkins believe that the Internet offers tons of valid investment opportunities. But over time as the mania machine evolved, a perfectly good investment opportunity has turned into a circus for suckers.

What is not explained in the book is how such a financial mania starts in the first place. So let's back up a bit. Nearly every mania was sparked by the convergence of four events:

1) The nation hosting the mania survives a traumatic crisis such as a war or depression -- in the current instance, the Cold War ended. Optimism rules the day. 2) Following the crisis, tensions among nations decrease and international trade booms. 3) A discovery, new invention or technology offers unmeasurable benefits, creating a sense of limitless possibility. Without precident, the market has no guideposts to help investors set a fair market value for securities issued by corporations that manufacture the new technology. Hundreds of businesses crop up to capitalize on the flood of money available to fund the new businesses. Some of the optimism is justified. Imagine what the first railroads meant to commerce? Suddenly goods could be shipped inexpensively over long distances in a set time period at relatively low cost. A huge boon to the economy, but in 1857 a bust to investors. The benefits of the new technology turned out to be great but not infinite. 4) Interest rates fall in the rapidly expanding and deflationary economic environment -- deflation driven by global competition and rising productive capacity. The money supply is permitted to increase rapidly in the absense of apparent inflationary pressures. The excess liquidity does not show up in the so-called real economy as higher priced goods and services, instead inflation arises in the asset prices. Why? Because increased competition and rising capacity lower profitability. Financial assets become the only profit game in town. Speculation ensues. Starting in 1996, the money supply in the US began a precipitous climb, and with it the stock market in general and Internet stocks in particular.

Which brings us back to Anthony and Michael Perkins. They explain the actual workings of the mania machine from the inside through interviews with key players. They explain where the mania started and how it evolved, the participation of venture capitalists and investment banks, and they lucidly compare the Internet bubble to the Biotech bubble that popped in 1992. They debunk the New Economy. Finally, they tell you where to look for real value in Internet investing.

This is an important book if you're in the stock market and especially if you own Internet stocks. Buy it.

The authors make a convincing case why internet stocks are enormously overvalued right now. They also provide insight into the machinations and manipulations that happen in the background, far away from the centerstage where the stocks are paraded in the limelight and small investors are convinced to part with their money.

While the authors are confident that the internet is here to stay (and grow), they are concerned about the insane valuations of internet stocks. On reading this book, any rational investor will go back convinced that the internet stocks are the tulip bulbs of the current era. One wishes small investors will heed this warning. But knowing the previous outbreaks of stock-market mania, not many will escape the ruinous effects of this one either.

I was skeptical when I first picked up a copy of this book. But the authors present their facts clearly, write concisely, and definitely know their stuff. I particularly liked the historical perspective: the Internet is for real, but the overvalued stocks of Internet companies are just part of a historical cycle, and they will drop. This book is a must read if you own any Internet stock.

In this book the Perkins tell us that the party is about over. They state flatly that, "If you own any of these companies (133 publicly traded Internet firms) it's time to sell". The book is a comprehensive analysis of how we got to the present state of affairs by looking at the history and the financial structure of the Internet marketplace. I read the book in two sittings over the weekend because after the first few pages I didn't want to miss the markets opening bell on Monday. The book is simply, scary. When business models, like Amazon's fail to demonstrate a way to ever be profitable it is time to worry.

They don't deny the glory of Silicon Valley, but they lay out a compelling case that the pumped up valuations are not sustainable and are about to go south big time. The book reads like a movie but feels like a slap up side the head. As the companies tank we at Buck's will be accepting stock certificates to repaper the rest rooms, so drop them by if you would.

Jamis MacNiven Buck's of Woodside

If you're looking for a book that will give you a good bird's eye view of the kind of investing currently going on in .com land, as well as a historical overview of past (mostly technology) bubbles, this one fits the bill. Better yet, if you're at Buck's restaurant in Silicon Valley, waiting for that venture capitalist you're trying to pitch on your latest business plan, you can pick up a copy and start reading right there! The Internet Bubble is a handy compendium of the history of previous technology bubbles, and the roles venture capitalists, investment bankers, and institutional investors -- as well as over-eager entrepreneurs - played in them, and anecdotes (some new, some already known) about the similar funding frenzy of today's .com stocks. It's meant as a caution to individual investors, and explains how they tend to end up holding the hot potato when companies are sent to the public markets too soon (as even some of the venture capitalists who fund those companies admit). Useful knowledge for any individual investor in .com stocks to have....

I am a swedish journalist thais working in new york. I wrote about the book in one of the major swedish daily economical newspapers. I also interviewed some high ranking people in Silicon alley here in new york city. The story made the headlines in sweden in all the media, newspapers, tv and radio. Still everybody should be able to understand that you cant build a tower of cards how high as you want. Even a child would understand that. Of course the new internetshares will drop dramatically. But no, everybody play the game of the monkey - se nothing, hear nothing. It's like the old saga by HC Andersen about the naked emperor. What the Perkins brothers have done is, in a very professional way, to just say: look, the emperor is naked! Lars Söderberg, New York City

Criticisms first: This book was a) somewhat clunky to read, more like a schema for a book than a book itself; b) somewhat thin; c) a little repetitive; and d) had a title only a glossator could love.

Now ... plaudits: The ever-contrarian freres Perkins are biting the hand that feeds them -- and it apparently tastes good. After years of being the house pet of venture capital firms up and down the West Coast, the last year has seen Red Herring toughen up somewhat. They don't just parrot vapid management and VC claims -- they analyze them, scoff at them, and generally do things that the trade press isn't supposed to do with full-page buyers of glossy ads.

This book continues the tradition, with muscular prose that amounts to chest shots at Kleiner Perkins (it overstates the jobs it has created; it helped fuel the current irresponsible bubble; and uber-investor John Doerr's radar regularly locks in on bogies).

This was good, tough journalism. While it may just be a coincidence, but I have found it heartily refreshing to see this book out, followed by Fortune's recent cover piece on dot-com financial machinations, and the Forbes expose on MicroStrategy.

Redemptive and highly recommended.

The Internet Bubble does an excellent job of detailing the history of the current Internet mania, with an insider's perspective on how many of the hot companies are created and taken to market. In addition, the authors give us an historical perspective by discussing other manias that parallel the current Internet mania. In the end,the message is clear: Get out of the market now! As someone who has witnessed the development of the Internet but is not part of the industry, I found this book enlightening, well-written, and worth reading.

As a "dot-com" kid I suddenly found it was the new millenium and I had a ton of money to blow. I read this book and the math was so dead-on I knew it was correct. But who could guess when the bubble would burst? Starting in March, 2000 it clearly started to burst but everytime there was a "dead cat bounce" I would go out and buy a million bucks worth of stocks only to watch that million turn to zip when the market fell further. This book is a great book, not from an historical perspective, but from an investment perspective. The fundamentals they talk about to analyze the bubble are useful now in determining which tech companies out there right now might have real value.

Gee, the internet stocks are mostly hot air, a bubble! Hardly news now except perhaps to a handful of people living on Fiji without electricity. It does not take a genius to identify a bubble when you see stocks like Yahoo selling at 2000 times earnings and most others selling at infinity times losses. What is surprising is that there two insiders waited so long to write about it. I guess they hoped that by delaying publication of this book until a top of the internet bubble market seemed imminent, they would appear brilliant predictors of the the top. In fact they did a disservice; why did they not begin warning people about the bubble a year ago? They note in the back of the book that the data - the figures they are using to demonstrate how inflated net stocks are - is from June, 1999, which is ancient history in internet time. The book's front page promises to tell investors what they need to know to avoid the coming shakeout, yet only once in 283 pages do they actually say SELL NOW.